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Reporting & Analyzing Merchandising Operations

Reporting & Analyzing Merchandising Operations. Chapter 4. Merchandising Activities. Merchandise Consists of products that a company acquires to resell to customers Retailer Is an intermediary that buys products from manufacturers and wholesalers. Income Statement.

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Reporting & Analyzing Merchandising Operations

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  1. Reporting & Analyzing Merchandising Operations Chapter 4

  2. Merchandising Activities • Merchandise • Consists of products that a company acquires to resell to customers • Retailer • Is an intermediary that buys products from manufacturers and wholesalers

  3. Income Statement • Net sales = (Sales – sales return) • Less Cost of goods sold • Gross profit • Less expenses • Net income

  4. Cost of goods sold Is the cost of merchandise sold to customers during a period. Largest single expense on a merchandiser’s income statement Inventory Refers to products a company owns and expects to sell in its normal operations Assets Inventory Systems

  5. Perpetual system Continually updates accounting records for merchandising transactions Periodic Inventory system Updates the accounting records for merchandise transactions only at the end of a period. Inventory Systems

  6. Accounting for Merchandising Purchases • Merchandise inventory – • Cost of merchandise purchased for resale. • Purchase cost, shipping fees, taxes, etc. • Purchased $1,200 of merchandise on credit • Merchandise inventory 1,200 • Accounts payable 1,200

  7. When a manufacturer or wholesaler prepares a catalog of items it has for sale, it usually gives each item a list price. Trade discount An item’s intended selling price equals list price minus a given percent. Purchase discounts Cash discount on the list price Trade Discount

  8. Terms • Credit terms • For a purchase include the amounts and timing of payments from a buyer to a seller • EOM • End of month

  9. Purchase Discount • Credit terms: 2/10, n/30 • 2% discount within 10 days • Full amount in 30 days • Purchased merchandise on credit $3,000 Merchandise inventory 3,000 Accounts payable 3,000

  10. Purchase Discount • Paid the prior purchase within the discount period. • Gross invoice: $3,000 • 2% discount 60 • Net to be paid 2,940

  11. Purchase discount • Accounts payable 3,000 • Merchandise inventory 60 • Cash 2940 • Reduction in merchandise inventory to reflect the true cost.

  12. Example 2: • Purchased merchandise on account $5,000, terms 1/10, n/60. • Record the payment within the discount period

  13. Example 2 • Merchandise inventory 5,000 • Accounts payable 5,000 • Invoice 5,000 • Discount 50 • Net of invoice 4,950

  14. Example 2 • Accounts payable 5,000 • Merchandise inventory 50 • Cash 4950

  15. Purchases Returns & Allowances • Refers to merchandise a buyer acquires but then returns to the seller. • Allowance is a reduction in price for defective merchandise

  16. Purchase returns • Global returns merchandise worth $500 and purchased on account. • Accounts payable 500 • Merchandise inventory 500

  17. Transportation Costs • FOB • Which determines who pays transportation costs • Shipping point • Means the buyer accepts ownership when the goods depart the seller’s place of business.

  18. Transportation Costs • Destination • Means ownership of goods transfer to the buyer when the goods arrive at the buyer’s place of business.

  19. Transportation Cost • Mackey purchases merchandise FOB shipping point. Transportation costs of $75 paid cash • Merchandise inventory 75 • Cash 75

  20. Sales of Merchandise • Each sales transaction for a seller of merchandise involves two parts. • Revenue • Cost of goods sold

  21. Sales of Merchandise • Cost of goods sold • Records the cost of the goods sold. • Expense account • Reduces the balance in the inventory account • Sales • Revenue account

  22. Entry for Sales • Sold merchandise on credit for $2,400. Merchandise had a cost of $1,600 • Accounts receivable 2,400 • Sales 2,400 • Cost of goods sold 1,600 • Merchandise inventory 1,600

  23. Example 3 • Mary sold merchandise on account for $5,000 with a cost of $2,000. Record the entries for the sale.

  24. Example 3 • Accts receivable 5,000 • Sales 5,000 • Cost of goods sold 2,000 • Merchandise inventory 2,000

  25. Sales Discount • Reduction in the price of the good for early payment • Expense account

  26. Sales Discount • Suppose that merchandise is sold for $5,000 with terms 2/10, n30. Cost of $2,500. Record the sale • Accts receivable 5,000 • Sales 5,000 • Cost of goods sold 2,500 • Merchandise inventory 2,500

  27. Sales Discount • Record the payment within the discount period • Sales 5,000 • Discount 2% 100 • Net price 4,900

  28. Sales Discount • Cash 4,900 • Sales discount 100 • Accounts receivable 5,000

  29. Example 4 • Suppose that merchandise sold on account for $6,000 terms 1/15, n/30. Record the payment within the discount period.

  30. Example 4 • Sales 6,000 • Discount 1% 60 • Net 5,940 • Cash 5,940 • Sales discount 60 • Accts receivable 6,000

  31. Sales Returns & Allowances • Returns: refer to merchandise that customers return to the seller after sale • Allowances – reductions in price of the merchandise sold to customers

  32. Sales Returns & Allowances • Contra revenue account • Increases with a debit • Suppose that merchandise sold for $3,000 with cost of $1,600 is returned. • Sales Returns 3,000 • Accounts receivable 3,000 • Merchandise inventory 1,600 • Cost of goods sold 1.600

  33. Homework • Purchases • EX 4-1, 4-5 • Sales • Ex 4-2, 4-4, 4-6, 4-7 • Buyer/Seller • Ex 4-2, 4-6 • Revenues • Ex 4-9

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